Weekly CFTC COT Forex Positioning: Euro Shorts Came Back In Force

After trimming their bets for several consecutive weeks, large speculators finally (but only slightly) increased the value of their net long bets on the Greenback from $14.99 billion to $15.02 billion, according to calculations done by Reuters. However, the latest Commitments of Traders forex positioning report from the CFTC shows that the Greenback’s gains were mainly at the euro’s expense, since the yen, the Swissy, and the comdolls continued their advance against the Greenback.

Oh, please keep in mind that the numbers below show the net positioning of non-commercial forex traders against the U.S. dollar. If you’re feeling overwhelmed by all these figures, you might need to review our School of Pipsology lesson on How to Gauge Market Sentiment Using the COT Report in order to learn how to pinpoint potential forex market reversals.

And here is how positioning activity played out during the week ending on February 21, 2017.

The value of net long bets on the Greenback finally rose after falling for several consecutive weeks. However, the increase is rather small. Moreover, positioning activity shows that demand for the Greenback was not broad-based since demand for the comdolls and the yen actually picked up. Meanwhile, bearish bias on the pound and specially the euro increased. Positioning activity was therefore very likely being driven by events, reports, and other catalysts specific to each currency, rather than any inherent demand for the Greenback.

With that said, Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker did give some rather hawkish comments on February 21, with Mester saying that she supports a rate hike and Harker saying that a March rate is possible. That may have given the Greenback demand a lift, but the fact still remains that positioning activity shows that the Greenback lost ground to the comdolls, the yen, and the Swissy.

Okay, here are the major events, reports, and other catalysts for the other currencies:

EUR – Euro bulls and euro bears were both reinforcing their positions. However, the rather drastic increase in fresh euro shorts easily overwhelmed the increase in euro longs. And the substantial increase in euro shorts was very likely due to political jitters in continental Europe, with the April 23 French presidential elections and March 15 Dutch parliamentary election in focus. The increase in euro longs, meanwhile, was likely a reaction to the string of positive reports for the Euro Zone at the time. The PMI readings for the Euro Zone were at multi-year highs, for example.

GBP – Net change in positioning on the pound was only very minimal. And positioning activity was also very minimal, with fresh pound shorts increasing by a mere 38 contracts and pound longs being reduced slightly by 786 contracts. The small decrease in pound longs was probably due to some pound bulls getting spooked by the U.K.’s disappointing jobs report and poor retail sales report were released. However, it’s kinda interesting that only a few pound bulls got scared off by the poor data. Although positioning activity does not yet reflect the U.K.’s revised GDP estimate, wherein the business investment component turned out to be a disappointment.

JPY – The yen took ground from the Greenback for the eighth consecutive week. And demand for the yen likely picked up, thanks to plunging U.S. bond yields, which also dragged the yields of Japanese government bonds (JGBs) lower, leading speculators to believe that the BOJ won’t be buying up JGBs to lower yield of 10-year JBGs close to 0%, as mandated by its monetary policy framework. As for what drove U.S. bond yields lower, safe-haven demand for U.S. bonds because of political uncertainty in Europe is one. Another is the search for higher yields.

CHF – Net bearish bets on the Swissy fell once more, and that was thanks another reduction in Swissy shorts. There wasn’t really much in terms of Swiss data during the week ending on February 21. Although Switzerland’s larger-than-expected trade surplus may have spooked some Swissy bears (CHF4.73B vs. CHF 3.03B expected, CHF 2.69B previous). Other than that, Swissy bears may have been convinced to abandon ship when risk appetite prevailed during February 20-21.

AUD – Non-commercial forex traders really ramped up their bullish bias on the Aussie. And a closer look at positioning activity shows that the net increase in bullish bias was all due to fresh longs, since short bets on the Aussie were essentially unchanged. This very bullish positioning activity on the Aussie was likely a reaction to the RBA’s meeting minutes, which said that the “fall in GDP in the September quarter had reflected some temporary factors.” Moreover, “resource exports were expected to make a significant contribution to growth over the forecast period and the drag on growth from falling mining investment was expected to wane.” This apparently reinforced the idea that the RBA won’t be cutting rates again anytime soon.

NZD – Both Kiwi bulls and Kiwi bears pared their bets. However, slightly more Kiwi shorts got culled, so the Kiwi continued to advance against the Greenback. Although the advance was so minimal that net positioning was essentially unchanged. Anyhow, the reduction in Kiwi longs was probably a reaction to the miss in New Zealand’s quarterly retail sales report, as well as the decline in dairy prices during the latest dairy auction. The fall in Kiwi shorts, meanwhile, was likely due to profit taking after the Kiwi plunged in the wake of the February RBNZ statement.

CAD – The Loonie was pushed deeper into bullish territory, thanks to an increase in fresh Loonie longs. The additional longs bets on the Loonie was likely a reaction to the rise in oil prices at the time. Although it’s also possible that positioning activity reflects optimistic speculation ahead of Canada’s top-tier economic reports, namely CPI and retail sales.

Got any other conclusions you can draw from this latest COT Report? Feel free to share your thoughts in the comments section or if you’re looking for further discussion, community member ForExchange has a lively thread called Trading based on Market Sentiment in the forums awaiting your participation.

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